Economic
Development(s)
In Latin America
Colonial economy
Mercantile system
Mercantilism is an economic system …..

Amassing wealth for Spain by a positive
balance of trade. Mercantile strategies :

Quinto Real (Royal Fifth)

Colonies in Americas could not produce
anything that would compete with Spanish
markets.

Set the colonies up for failure. When Spain fell,
the colonies were crippled.
They had been cut off from technologic
improvements going on in Europe;
 they had no independent trade system among
themselves that did not involve Spain.

Independence
What led to Independence?
1. More and more criollos; fewer peninsulares
2. Hundreds of Rebellions
Colonialism had lasted 300 years; more and more
resistance
e.g. Tupac Amaru II, Peru , 1781
3. Slave revolt in Haiti (1791-1804)resulted in
abolition of slavery. Haitian Republic became first
independent black nation in the world.
4. Enlightenment : progress and liberty
US and French Revolutions
5. Napoleonic occupation of Spain and Portugal
Spain losing monopoly on colonies to British,
Dutch, French
Independence
Stars of Independence

Simón Bolivar

Father Hidalgo

Jose Morelos

José de san Martín

Policarpa Sabarrieta
 Most
nations became independent 18101825 (Belize 1981)
Post-Independence
Began as movements for liberty for all.

Colonial legacy: elitism, authoritarianism,
militarism
violent class warfare
Semi-dependent economies

Elite still ruled





Upheld by caudillos (military strongmen)
Dictatorships have roots in caudillismo
Exceptions: Cuba, Puerto Rico, Costa Rica,
Brazil
Conservative and liberal

Ruling criollo elite classes strictly divided:
 Conservative :
 Strong

centralized government
Centered in capitals
 Upheld
political/economic power of Catholic
Church and old land-owning elite
 Believed in power of military

Liberal :
 Representative


government
Power to the masses
State and provincial centers of power
 Separation
of church and state
 Free markets
Modern/Liberal Period
Late 1800s-early 1900s
 Strong







Coffee (Brazil, Venezuela, Colombia, Costa Rica,
Nicaragua)
Cacao (Venezuela, Ecuador)
Silver (Mexico)
Guano (Peru, Chile)
Meat, wool (Argentina)
Sugar (Cuba)
Oil (Venezuela)
 Whole

export economies to global North
nations reliant on 1 or 2 crops
“Boom or bust” economy, dependent on world
market
Modern/Liberal Period
Other Important changes

Some technologies from Industrial Revolution
coming to Americas

Jump-started mineral industry & large scale
agriculture


Bonds (loans) from outside nations


To be used for importing their manufactured
goods
Foreign investment (US, UK, France, Germany)

For infrastructure to aid exporting



Huge inequalities in land tenure
Hinterlands undeveloped
Buying up large tracts of land
Population growth



In cities
Immigration
LA pop. returned to pre-Conquest levels (60 million by
1900)
Fall of liberal period
Depression and WW II

No more demand for things like bananas,
coffee, chocolate

Prices for exports dropped by 2/3

War disrupted ties to Europe



For imports and foreign capital
Drop in foreign exchange, so LA countries
could not buy imports
After war, Europe preoccupied with
reconstruction
ISI
Import Substitution Industrialization
(ISI) (40s,50s, 60s)
 Reduce
foreign dependency
 nations put money into developing
domestic industrial sector

Instead of importing manufactured goods
 (But


still needed to import parts, equipment)
Protected by import quotas, tariffs on
foreign goods
Nationalize basic industries:
 public
utilities, rail, air, mines, etc.
ISI
 Brazil,

Argentina, Mexico
ISI successful because they had high
populations, resources and markets
 Mexico
and Brazil were producing GM, Ford,
Volswagen and Fiat cars

But took loans from private banks
 Led
to debt crisis later
Fall of ISI
Effects of ISI
1. Isolation from foreign investment and technologies
poor quality products
2. No market for products
poor class could not afford
no middle class
wealthy bought foreign, high quality goods
3. Uneven development
Gov’t-imposed low prices on food crops while cost to
produce food grew
Small-scale farmers forced out of business
4. Flight to cities for employment
ISI focused on major cities
“overurbanization”
Fall of ISI
“Overurbanization”
no jobs, led to development of
“informal sector” and large shanty towns
5. Still reliant on outside assistance!
Need to continue to import parts,
equipment ; led to increased need for
imports, rather than decreased
6. Outside investors turned away from LA
forced reliance on WB and IMF for
loans; huge foreign debts
7. Social unrest led to rise of military
dictatorships
8. Hyperinflation
OPEC oil price hike
OPEC oil price rise
 1973,

1979 price hikes
US, UK economies stagnated because they
import oil
 OPEC
nations began to put their earnings
in major banks in US, UK
 Those banks invested in LA and
Caribbean nations, at low interest rates

Who needed the money to buy oil
1980s
 Reagan
(US) and Thatcher (UK) decided
to increase those interest rates, to help
their own economies
 Led
to enormous economic crisis in Latin
America
Debt crisis
Foreign debt cycle

Foreign lenders need quick return on investment

Influx of foreign capital leads to short-term economic
growth for borrowers

Inflation






Leads to devaluing of currency
Leads to reduced purchasing power overseas
Borrow more money to make scheduled payments
on loans
All dependent on vigor of foreign markets which
wax and wane
In many cases, foreign debts exceeded exports
1982 Mexico devalued peso; domino effect
influx of
foreign capital
period of
accelerated
growth
borrowing
recession
reduced
purchasing
power
inflation
currency
devaluation
Vicious cycle of foreign aid / debt
Lost Decade
The “Lost Decade”: 1980s




US raised interest rates on loans to finance
defense spending
World recession decreased export demand
for LA products : no capital coming in!
Hyperinflation
Currency devaluation led to low purchasing
power

E.g. 1986: cost of a hamburger in La Paz = 3
million pesos
neoliberalism
 International
Monetary Fund (IMF) was
brought on board to manage the crisis.
 Emergency
recue package to bail out LA
countries who could not pay loans

Extended loan period under conditions

…about the IMF…..
Neoliberalism
Neoliberalism
Bretton Woods, New
Hampshire 1944
Meeting of corporate
executives, economists,
politicians, bankers
to finance
reconstruction of postWW II Europe
Established centralized
global economic system:
World Bank
International
Monetary Fund (IMF)
 Purpose
was to create global economic
cooperation (among wealthy nations);
nations were hurting each other by
imposing tariffs
 System of fixed exchange rates with US
dollar as reserve currency
 IMF oversaw global monetary policy
 WB was development bank giving loans
to member countries for development
projects
Neoliberalism
World Bank Charter
“to assist in the reconstruction and development of
territories of member nations by facilitating the
investment of capital for productive purposes”.
(Member governments put up capital. This money
could be borrowed against at favorable rates in
international financial markets, then loaned for
development projects).
Neoliberalism
membership
Countries must be members of IMF before
becoming members of WB.
Number of votes a country receives is based
on how much capital the country gives to
the IMF.
Wealthy countries have more votes.
Roles of IMF and WB changed
greatly over time
 Cold
War: WB loans were used to suit US
geopolitical interests in LA
 After
1982, WB and IMF got heavily
involved in LA economies.
Neoliberalism
IMF in Latin America during
Lost Decade (1980s)
 Implement
again



neoliberal (free trade) policies
Overhaul of LA economies
New Loans
“IMF Conditionality” (strings attached to
loans): STRUCTURAL ADJUSTMENT
PROGRAMS
Neoliberalism
Structural Adjustment
Programs (SAP)
 Reoriented
national economies to focus on
debt repayment and opening markets.






Cut public spending (health care, education)
Privatize
Promote exports
Eliminate government subsidies (food, fuel,
transport)
Currency devaluation
Liberalize foreign trade and investment
Neoliberalism
External Debt
Nations become unable to make scheduled
debt payments.
Economic downturns in developed world
means inability to loan as much money.
Default on loans; renegotiate terms of loan
Accrue enormous and increasing debt.
Neoliberalism
Debt Crisis
Extreme cases, 1989
country
Debt as % GDP
Ecuador
104.3
Guyana
402.9
Jamaica
108.9
Nicaragua
842.1
Panama
115.7
Neoliberalism
Effects of SAP in 1980s:
 Decreased

Per capita income decreased by 10%
 Increased


poverty and unemployment
Local businesses could not compete
Cheap imports (corn, rice, etc)
 Elimination

wages
of subsidies on food, fuel, transport
Price of food increased, (US still subsidized its own
agriculture)
 Imports
decreased
 Transferred wealth out of the region (>$200
billion)
 Disproportionate
burden on poor
 1980:
27% of LA living in poverty
 1990: 33%
 10
million children malnourished
 Many
countries spending more on debt
service than on education
Still in debt!
 Between
1980-2000, LA and Caribbean:

Paid $1.65 trillion in debt service

Owed $191 billion in 1981
Owed $750 billion in 2000

 There
has been inflation decreases in
some countries as a result of neoliberal
strategies
 The
overwhelming conclusion is that
neoliberal strategies have failed in LA
Extreme cases, inflation
country
1971-1980
1981-1990
Aver. Annual Growth of Consumer
Price Indexes (%)
Argentina
141.5
437.7
Bolivia
19.6
220.0
Brazil
35.6
337.0
Mexico
16.6
65.2
Nicaragua
19.6
618.9
Peru
30.3
332.0
Strategy for devalued
currency

Create a new currency

E.g. Brazil:








1942-1967 Cruzeiro antigo
1967-1986 cruzeiro novo = 1000 Cruzeiros antigo
1986-1989 cruzado = 1000 cruzeiros (novos)
1989 – 1990 cruzado novo = 1000 cruzados
1990-1993 cruzeiro = cruzado novo
1993-1994 cruzeiro real = 1000 cruzeiros.
1994-now Real = 2750 cruzeiros reals (to equal US dollar at
the time)
Reduces zeros but does not change inflation
Total external debt as % of GDP (2003)
1970
1989
2003
2009
7.5
77.8
112.2 %
38.2
Costa Rica 13.8
80.5
21.5
27.4
Guyana
402.9
202.1
46.1
37.9
19.5
Argentina
Haiti
10
Brazil
8
26.9
47.8
12.6
Jamaica
10.3
108.9
69.6
53.1
Considerable progress by many countries in lowering national debt by 2009